Telecom relief eases default risk for banks

The telecom relief package announced by the government on Wednesday will ease the default risk that banks were staring at from debt-laden Vodafone Idea Ltd (VIL). Besides, analysts also said the provisioning requirements for banks would also ease. However, bankers said they are awaiting the plan of action from the telecom companies to assess the situation.

According to analysts, VIL’s debt from banks and financial institutions stood at Rs 23,400 crore. Its AGR dues are over Rs 61,000 crore. It has near-term repayment obligations of Rs 6,400 crore over December 2021-March 2022 and additional deferred spectrum/AGR liability payment of Rs 15,700 crore/Rs 6,600 crore due in March 2022/April 2022 as of now. Its total debt is of Rs 1.9 lakh crore.

“The risk of default in the near to medium term has certainly come off. Besides, some banks with sizeable exposure to Vodafone had accelerated their provisioning and will now rework the provisioning,” said Anand Dama, analyst at Emkay Global.

“Banks’ fund-based and non-fund-based exposure to Vodafone is Rs 24,000 crore each. Banks were anticipating a default risk over the next few months. If Vodafone could not service the AGR dues it would have simply declared itself insolvent to protect the value in the company and then would have defaulted. But with this breather, the potential risk on debt servicing has come down. We have to wait and see what Vodafone plans to do now,” said an analyst.

“We need to understand the implications of the relief measures. Clarity should come from the telecom companies as to what is their plan of action going forward, how Vodafone will pay off the obligations,” said a banker with sizeable exposure to VIL.

According to Sabyasachi Majumdar, senior VP and group head, corporate ratings at Icra, the moratorium on AGR dues provides annual cash flow breather of around Rs 14,000 crore for the telecom industry while the moratorium on spectrum dues gives another Rs 32,000 crore of annual cash flow relief for the industry as a whole. Further, a moratorium of four years gives time for the telecom industry to improve its financials.